KHS Flite 250 wheel recommendation

I recently purchased a KHS Flite 250 flat bar road bike(2008 possibly) to use for my winter commute. For the money, it is perfect. Whisper quiet, shifts perfectly, and very smooth riding. The only 2 things that I'd like to upgrade are the wheels, primarily, and the brakes.

The problem is the rear dropout is 126mm. I've only got back into cycling for about 7 months so there's a lot I don't know about, so excuse the silly questions. Is there any off the shelf wheels that would fit this, or do I have to have a LBS build a set. I was thinking down the road of possibly going to 10 speed, but I guess with the rear dropout spacing that's not going to happen. Or can I? The brakes are adequate, but the pads are going to wear out quickly. I don't know if there are better replacement pads for these brakes or not. I don't know the manufacturer of the brakes(No name or part# on brakes). One more ramble and I'm done. The Kenda Kontender wheels(26mm) roll as smooth as silk(No road vibration). Any better quality tire to recommend?

You may want to re-measure that, 126mm hasn't been a common standard for the rear OLD for 20+ years now, add to that you have a cassette rear hub, these are only available in 130mm widths (on a road bike) On the basis of it being a 130mm OLD hub, you need to set a budget, and requirements, i.e. what load does the bike carry, if light, a factory wheel set will be great, if heavy, you may want to look at ta handbuilt 32/36 hole set.

For brakes, what pads are you using? Koolstop Salmon are the standard choice of BF, if you were to change the complete brake, would look at a mid range set of Shimano calipers, they are basic, but functionally as good as you get.

For upgrading to 10 speed, would look at the cost of this vs a complete bike, there may not be much if anything in it, to convert from what you have, you would need a complete drivetrain - shifters, F&R dérailleurs crank, cassette chain. Add the cost of wheels and brakes to this, and a complete bike may be cheaper.

You may want to re-measure that, 126mm hasn't been a common standard for the rear OLD for 20+ years now, add to that you have a cassette rear hub, these are only available in 130mm widths (on a road bike) On the basis of it being a 130mm OLD hub, you need to set a budget, and requirements, i.e. what load does the bike carry, if light, a factory wheel set will be great, if heavy, you may want to look at ta handbuilt 32/36 hole set.

For brakes, what pads are you using? Koolstop Salmon are the standard choice of BF, if you were to change the complete brake, would look at a mid range set of Shimano calipers, they are basic, but functionally as good as you get.

For upgrading to 10 speed, would look at the cost of this vs a complete bike, there may not be much if anything in it, to convert from what you have, you would need a complete drivetrain - shifters, F&R dérailleurs crank, cassette chain. Add the cost of wheels and brakes to this, and a complete bike may be cheaper.

Well, I assumed it was 130mm dropout until I tried putting in my Fulcrum 3 wheelset. The front dropped in fine, but the rear didn't even come close to fitting, so I took the skewer out, and even took the cassette off, tried to no avail. I measured between the dropouts with a caliper and it measured 126mm. The cone retaining nuts(if that's what they're called) were still halfway on the chainstays. Maybe someone used a narrower hub and compressed the crmo dropouts to make it work?